Despite government approval, Formosa Plastics Corp's (FPC,
"The demand for steel in the Chinese market is likely to slow down in the short term as construction of infrastructure and at Olympic venues has mostly been completed," said Mike Chow (周道中), a senior manager at Yuanta Core Pacific Capital Management (元大京華投顧).
"Furthermore, the Chinese government will not aggressively address, in the near future, concerns over inflation and an overheating economy," Chow said, expressing his less-than-optimistic views toward Formosa Plastics' China-bound investments in the short to medium term.
In the long term, Chow was more optimistic as the enormous population of China could spell good news for Formosa Plastics' China-based plant.
On Friday, the Ministry of Economic Affairs' (MOEA) Investment Commission approved China-bound investments by Formosa Plastics and Advanced Semiconductor Engineering Inc (ASE, 日月光半導體), valued at US$100 million (NT$3.17 billion) and US$30 million respectively.
Formosa Plastics plans to build a stainless steel plant in Changzhou, Fujian Province, through a joint venture with its subsidiary Formosa Heavy Industries Corp (台朔重工), with each contributing US$50 million to the investment.
There is also a promise to invest a further NT$813.3 billion in Taiwan over the next five years.
Formosa Plastics hopes to have completed the plant's construction within two years, with an expected output of 720,000 tonnes annually, mostly intended for the Chinese steel market.
Chow also raised concerns over possible negative impact from a new labor law, which took effect in China last month, on Formosa's investments there.
Chow said the Chinese government had begun to step up its social welfare and pension systems in recent years following its economic boom.
As the government is unable to meet the expense, the tap is further put on businesses including China-based Taiwanese businesses, which will no longer enjoy low taxes and low labor costs there.
"Aside from high value-added industry, the new labor law will mostly hurt Taiwanese manufacturing oriented companies, which employee a large number of workers," Chow said.
Meanwhile, Taiwanese land developers urged the government on Friday to prevent exports of steel as local supplies fail to meet demand.
The MOEA said that it will keep an eye on the local demand-supply balance before reaching a decision on whether to bar local steelmakers from exporting.
The ministry's statistics showed that 378,000 tonnes of steel had been exported to overseas markets as of November.
The ministry's investment commission is expected to review the proposal this week.
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